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Analysis

A G20 Rome Revolution on a New Global Tax Regime?

Chiara Oldani,
Director, G20 Research Group Italy, October 29, 2021

The COVID-19 pandemic has posed unprecedented economic, social and political challenges for G20 members. The priority policy pillars of Italy's 2021 G20 presidency – People, Planet and Prosperity – are driving diplomatic efforts to deliver agreements on critical global policy issues at the Rome Summit on October 30-31, 2021.

Most G20 members' policies converge on the need for a global corporate profit tax scheme that can fund the recovery process, and redistribute the profits of transnational and digital corporations. Indeed, the post-pandemic economic system should find a more efficient and fair way to distribute resources and allocate taxation. Domestic tax base erosion and profit shifting (BEPS) due to multinational enterprises exploiting gaps and mismatches between different countries' tax systems affects the public revenues of all G20 members. The Organisation for Economic Co-operation and Development (OECD) estimates a loss of €240 billion in tax revenues due to BEPS, and countries have had a very deep and long discussion on the need for a global corporate profit tax. Developed countries rely heavily on corporate income tax, which means they suffer disproportionately from BEPS. Their "beggar thy neighbour" policy response has so far prevailed for taxing multinational and transnational corporations, in both the traditional and digital sectors.

At their July 2021 meeting in Venice, G20 finance ministers adopted the OECD's proposal for a global business taxation scheme based on two pillars. It applies to multinational firms with a global turnover above €20 billion, and relies on the principles of tax certainty, double taxation avoidance and simplification. The minimum tax rate is 15%, and the tax will be paid in countries where the multinational firm derives at least €1 million in revenue from that jurisdiction.

At their summit in Rome, G20 leaders should approve and finalize the technical efforts of their finance ministers and agree on the fair and efficient business tax system: this would be a great achievement of the Italian G20 presidency.

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Chiara Oldani is professor of monetary economics at the University of Viterbo 'La Tuscia' and the director of the G20 Research Group's Rome office. Her research currently focuses on over-the-counter financial derivatives and the complex web of counterparty risk, widely considered a major precipitating factor of the global financial crisis. Follow her at @ChiaraOldani.